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Customer Segmentation: Why It’s So Important

Customer segmentation is a fundamental part of maintaining relationships, no matter what industry you’re in.

Below, you’ll learn what customer segmentation is, how to do it for your company, the impact to your bottom line.

WHAT IS CUSTOMER SEGMENTATION? HERE’S THE DEFINITION

Customer segmentation is a process in which a business evaluates its customer base, identifies commonalities of mutually exclusive groups like age, behavior, preferences, or spend history, and breaks out these segments for communication purposes.

This is a marketing process that is a precursor to targeting and positioning.

Targeting means selecting a segment and deciding what channel to reach them through, like email, in-service greetings, post-service follow-up, etc.

Positioning is the act of deciding on the messaging that you will use to communicate.

An important component to customer segmentation that makes targeting easy is choosing mutually exclusive groups. That way, you target each with individual messaging that does not overlap.

So think of customer segmentation as the following:

Splitting your customer pie out into different slices

Finding what makes each slice unique

Planning communication for each slice

Of course, this is simplifying the process. The reality could be multiple pies with different types of segmentation (see next section) where there is overlap from a slice in one pie to the next. This is where targeting gets specific, and a company must choose a communication hierarchy and set filters into place that prevent customers from receiving two communications.

For example, let’s say I have a business that is a restaurant. It’s called Five Figs. I segment out my guests based on spend and number of visits. I want to send to send two emails: one to high-spenders, inviting them to a VIP dinner at Five Figs, and another to first-timers, thanking them for stopping by for their visit.

It’s possible for a First Timer to also hit a spend threshold that qualifies them as a High Spender. So Five Figs would need to set a threshold that says “send XX emails max per week to each guest” and/or they could set a priority where guests receive the VIP email over the other.

In addition to being differentiable, like we talked about above, here are some other important requirements for effective customer segmentation: